1.(a)Define the marginal propensity to consume and explain its role in

determining the size of the multiplier. (4 marks)

(b) Explain how the size of the multiplier will change when one brings in the role

of imports. (2 marks)

(c) Using the concepts in parts (a) and (b) above, calculate the slope of the AE

curve and the size of the multiplier if MPC = 0.80. Then, calculate the revised

slope of the AE curve and the multiplier when you know that the marginal

propensity to import is 0.15 and the marginal tax rate (induced tax rate) is 0.2.

(4 marks